Answered Essay: Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole pr

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model no. 6754: Variable costs, $19.00 per unit Annual fixed costs, $985,800 Model no. 4399: Variable costs, $11.80 per unit Annual fixed costs, $1,114,400 Corrigan’s selling price is $68 per unit for the universal gismo, which is subject to a 10 percent sales commission. (In the following requirements, ignore income taxes.) Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal? (Do not round intermediate calculations and round your final answer up to nearest whole number.)

Expert Answer


The required volume where the total cost of both the systems will be equal will be:

let n be the number of units where total costs are equal

fixed costs of model A + variable costs of model A = fixed costs of model B + varible costs of model B

=>$985,800 + ($19) n = $1,114,400 + ($11.80)n

=>7.20 n = $128,600

=>n = 17,861 units.

at a volume of 17,861 units the total cost of each system will be equal.

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